<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CONTINENTAL MATERIALS CORPORATION
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the Appropriate Box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
CONTINENTAL MATERIALS CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1999 annual meeting of stockholders of Continental Materials Corporation
(the "Company") will be held at The Northern Trust, 50 South LaSalle Street,
Chicago, Illinois, on Wednesday, May 26, 1999, at 10:00 a.m., to consider and
act upon the following matters:
(a) The election of three directors to serve until the 2002 annual
meeting or until their successors are elected and qualified;
(b) The ratification of the appointment of independent certified public
accountants to the Company for the fiscal year ending January 1, 2000;
(c) The approval of an amendment to the Company's Certificate of
Incorporation to effect a reverse stock split (1-for-50) followed
immediately by a forward stock split (100-for-1). The reverse stock split
would result in a cash out of registered stockholders holding fewer than 50
shares of the Company's common stock; and
(d) The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 1, 1999 are
entitled to notice of and to vote at the annual meeting or any adjournment
thereof.
Accompanying this notice are the Annual Report for the fiscal year ended
January 2, 1999, a proxy statement, a form of proxy, and an envelope for
returning the executed proxy to the Company. Stockholders unable to attend the
annual meeting in person are requested to date, sign and return the enclosed
proxy promptly.
By Order of the Board of Directors,
[SIG]
Mark S. Nichter
Secretary
Chicago, Illinois
April 26, 1999
<PAGE>
CONTINENTAL MATERIALS CORPORATION
225 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
PROXY STATEMENT
------------------------
GENERAL INFORMATION
The enclosed proxy is solicited by and on behalf of the Board of Directors
(the "Board") of Continental Materials Corporation, a Delaware corporation (the
"Company"), for use at the annual meeting of the Company's stockholders to be
held on May 26, 1999, and is revocable at any time before it is exercised. Such
revocation may be effected by written notice to the Secretary of the Company, by
executing a subsequent proxy or by voting at the meeting in person. All proxies
duly executed and received will be voted on all matters presented at the
meeting. Where a specification as to any matter is indicated, the proxy will be
voted in accordance with such specification. Where, however, no such
specification is indicated, the proxy will be voted for the named nominees, for
the ratification of PricewaterhouseCoopers LLP, for the proposed amendment to
the Company's Certificate of Incorporation, and in the judgment of the proxies
on any other proposals. The approximate date on which this proxy statement and
the enclosed proxy are first sent or given to stockholders is April 26, 1999.
The holders of record on April 1, 1999, of the 1,051,251 outstanding shares
of common stock of the Company, are entitled to notice of and to vote at the
annual meeting. Each such share is entitled to one vote for each director.
The three nominees for election as directors at the 1999 annual meeting of
stockholders who receive the greatest number of votes cast for the election of
directors at that meeting by the holders of the Company's common stock entitled
to vote at that meeting, a quorum being present, shall become directors at the
conclusion of the tabulation of votes. An affirmative vote of the holders of a
majority of the voting power of the Company's common stock, present in person or
represented by proxy and entitled to vote at the meeting, a quorum being
present, is necessary to approve the ratification of the appointment of
independent certified public accountants for the fiscal year ending January 1,
2000. An affirmative vote of the holders of a majority of the voting power of
the Company's common stock, present in person or represented by proxy and
entitled to vote at the meeting, a quorum being present, is necessary to approve
the proposed amendment to the Company's Certificate of Incorporation. Under
Delaware law and the Company's Certificate of Incorporation and By-Laws, the
aggregate number of votes entitled to be cast by all stockholders present in
person or represented by proxy at the meeting will be counted for purposes of
determining the presence of a quorum. Abstentions and broker non-votes are
counted for purposes of determining the presence or absence of a quorum. If a
quorum is present at the meeting, the total number of votes cast FOR each of
these matters will be counted for purposes of determining whether sufficient
affirmative votes have been cast. Shares present in person or by proxy but not
voted, whether by abstention, broker non-vote, or otherwise, have the same legal
effect as a vote AGAINST the matter even though the stockholder or interested
parties analyzing the results of the voting may interpret such a vote
differently.
<PAGE>
ELECTION OF DIRECTORS
The Company has a Board of Directors consisting of nine persons, divided
into three classes. At this year's annual meeting three directors will be
elected to serve for a term of three years or until their successors are elected
and qualified. It is the intention of the persons named in the accompanying form
of proxy to vote for the nominees named below. Management has no reason to
believe that any nominee will be unable to serve. If any nominee should not be
available, the persons named in the proxy will vote for the election of such
persons as will continue as nearly as possible the existing management goals of
the Company.
<TABLE>
<CAPTION>
NAME, AGE AND OTHER SERVED AS CURRENT TERM
POSITIONS, IF ANY, DIRECTOR AS DIRECTOR
WITH COMPANY SINCE BUSINESS EXPERIENCE EXPIRES
- - ------------------------------------------ ----------- ------------------------------------------- ---------------
<S> <C> <C> <C>
NOMINEE DIRECTORS
Ralph W. Gidwitz, 63...................... 1984 President, Chief Executive Officer and 1999
Director of Financial Capital
Corporation, a financial consulting
company, since 1996. Mr. Gidwitz was
previously President, Chief Executive
Officer and Director of RKG Corporation,
a company engaged in mergers and
acquisitions from 1991 through 1996.
William G. Shoemaker, 82.................. 1968 Independent business consultant since 1999
January 1991.
Theodore R. Tetzlaff, 54.................. 1981 Partner in the Chicago law firm of Jenner & 1999
Block since 1982.
CONTINUING DIRECTORS
Thomas H. Carmody, 52..................... 1994 Chief Executive Officer of Continental 2000
Sports Group, LLC, a sports marketing and
distribution company, since 1998. Mr.
Carmody was previously Consultant to
Chairman and Chief Executive Officer of
Reebok International, Ltd., publicly
traded footwear, apparel and fitness
equipment company. Mr. Carmody has also
previously served as Vice President, U.S.
Operations and Vice President, Sports
Division of Reebok.
Ronald J. Gidwitz, 54..................... 1974 Partner in GCG Partners, a strategic 2000
consulting and equity capital firm, since
1998. Mr. Gidwitz was previously
President of Helene Curtis, a producer of
personal care products, from 1979 to 1998
and Chief Executive Officer from 1985 to
1998.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND OTHER SERVED AS CURRENT TERM
POSITIONS, IF ANY, DIRECTOR AS DIRECTOR
WITH COMPANY SINCE BUSINESS EXPERIENCE EXPIRES
- - ------------------------------------------ ----------- ------------------------------------------- ---------------
<S> <C> <C> <C>
Darrell M. Trent, 60...................... 1997 Chairman of the Board and Chief Executive 2000
Officer of Acton Development Company,
Inc., a real estate development and
property management company, since 1988.
Mr. Trent was also Chairman of the Board
and Chief Executive Officer of Clean
Earth Technologies, Inc., an
environmental management venture, from
1992 to 1994.
James G. Gidwitz, 52,
Chairman of the Board and
Chief Executive Officer................. 1978 Chairman of the Board and Chief Executive 2001
Officer of the Company since 1983.
Betsy R. Gidwitz, 58...................... 1996 Former Professor from Massachusetts 2001
Institute of Technology.
Joseph J. Sum, 51, Vice
President and Treasurer................. 1989 Vice President and Treasurer of the Company 2001
since 1988. Mr. Sum previously served as
Assistant Treasurer of the Company from
1978 through August, 1988, Controller
from 1979 through January, 1989 and
Secretary from 1983 through February,
1993.
</TABLE>
FAMILY RELATIONSHIPS
James G. Gidwitz and Ronald J. Gidwitz are sons of Gerald S. Gidwitz. The
late Joseph L. Gidwitz was Gerald S. Gidwitz's brother. Ralph W. Gidwitz is a
son of, and Betsy R. Gidwitz is a daughter of, Joseph L. Gidwitz. Gerald S.
Gidwitz, together with his wife, and their descendants as well as the
descendants of Joseph L. Gidwitz are herein referred to as the "Gidwitz Family."
See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
COMMITTEES OF THE BOARD
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee. There is no standing nominating committee or other
committee performing similar functions.
In 1998 the Audit Committee was composed of Theodore R. Tetzlaff, William G.
Shoemaker and Ralph W. Gidwitz. The function of the Audit Committee is to review
and make recommendations regarding: the hiring or retention of an independent
accounting firm to audit the Company's financial statements; the Company's
policies with respect to maintaining its books and records and furnishing
information to its independent auditors; the scope and effectiveness of the
independent auditor's audit procedures; the implementation of recommendations
made by the independent auditors in their annual management letter; the adequacy
and competency of Company personnel engaged in such activities; the procedures
of the Company in furnishing the public financial information, in accordance
with generally accepted accounting principles and practices; and such other
matters relating to the Company's financial
3
<PAGE>
affairs and accounts as the Audit Committee deems desirable or in the best
interest of the Company. There was one committee meeting in 1998.
The Compensation Committee was composed of Ronald J. Gidwitz and Theodore R.
Tetzlaff in 1998. See "COMPENSATION COMMITTEE REPORT" for a discussion of
responsibilities. The Committee held three meetings in 1998.
BOARD MEETINGS
The Board of Directors held three meetings in fiscal 1998. All directors
except Thomas H. Carmody attended 75% or more of the aggregate number of
meetings of the Board of Directors and the Committees of the Board of Directors
during the time when they served.
DIRECTOR'S COMPENSATION
Each director who is not an officer or employee of the Company receives a
set fee of $10,000 per year, plus additional fees of $500 for each board meeting
or board committee meeting which he or she attends, with a $5,000 cap on the
aggregate meeting fee.
EXECUTIVE COMPENSATION
The following table summarizes the compensation of the Company's chief
executive officer and its two other executive officers for the years 1996
through 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------
PAYOUTS
AWARDS -------------
ANNUAL COMPENSATION -------------------------- LONG-TERM
-------------------------------------------------- RESTRICTED INCENTIVE
NAME AND PRINCIPAL OTHER ANNUAL STOCK STOCK PLAN
POSITION YEAR SALARY BONUS COMPENSATION (1) AWARDS OPTIONS PAYOUTS
- - --------------------------- --------- --------- --------- ----------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
James G. Gidwitz -- 1998 $ 366,931 $ 311,250 -- None None None
Chairman and Chief 1997 359,550 260,900 -- None None None
Executive Officer 1996 346,813 246,900 -- None None None
Joseph J. Sum -- 1998 166,500 91,700 -- None None None
Vice President and 1997 162,591 75,900 -- None None None
Chief Financial Officer 1996 154,958 73,300 -- None None None
Mark S. Nichter -- 1998 97,000 40,100 $ 14,488 None None None
Secretary 1997 94,750 34,000 15,680 None None None
1996 90,292 31,700 15,125 None None None
<CAPTION>
NAME AND PRINCIPAL ALL OTHER
POSITION COMPENSATION (2)
- - --------------------------- -----------------
<S> <C>
James G. Gidwitz -- $ 104,472
Chairman and Chief 100,559
Executive Officer 97,918
Joseph J. Sum -- 38,305
Vice President and 31,513
Chief Financial Officer 29,697
Mark S. Nichter -- 19,774
Secretary 18,968
17,581
</TABLE>
- - ------------------------------
(1) Where no amounts are shown, Other Annual Compensation does not exceed the
reporting thresholds.
(2) For 1998, the amounts shown represent the employer matching contributions to
the Company's 401(k) Plan. For Messrs. Gidwitz and Sum, these amounts
include amounts deferred under a Supplemental Profit Sharing Plan.
STOCK OPTIONS
The Company's Amended and Restated 1994 Stock Option Plan provides for the
granting of stock options to attract, retain and reward key managerial employees
of the Company or its subsidiaries. The Stock Option Plan provides that grants
of options and option prices will be established by the Compensation Committee
of the Board of Directors. Option prices may not be less than the fair market
value of the stock at the date of the grant. During 1995 there were options
granted for 78,000 shares of stock at an exercise price of $13.125. All 78,000
options became exercisable during 1996 although none were exercised.
4
<PAGE>
There have been no other options granted. During 1997, 12,000 of the shares were
forfeited when the grantee resigned from the Company. During March 1998, 6,000
shares were purchased under the program by one of the grantees.
The following table sets forth the number of shares for which stock options
were exercised by executive officers during the last fiscal year, the value
realized, the number of shares for which options were outstanding and the value
of those options as of the fiscal year end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY OPTIONS
AT FY-END
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- - ----------------------------------------- ------------------- --------------------- ------------- --------------------
<S> <C> <C> <C> <C>
James G. Gidwitz......................... 0 0 30,000/0 $ 701,250/0
Joseph J. Sum............................ 0 0 12,000/0 280,500/0
</TABLE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation.
The Executive Compensation Program is administered by the Compensation
Committee of the Board of Directors (the "Committee"). The Committee's major
responsibilities are:
1. Reviewing the Company's major compensation and benefit practices,
policies and programs including administration of the Company's Amended
and Restated 1994 Stock Option Plan with respect to executive officers;
and
2. Reviewing executive officers' salaries and bonuses.
COMPENSATION PHILOSOPHY
It is the philosophy of the Company to ensure that executive compensation is
linked to corporate performance. Accordingly, in years in which performance
goals are achieved or exceeded, executive compensation should be higher than in
years in which the performance is below expectation. At the same time, the
Committee is cognizant of its need to offer compensation that is competitive. By
providing the opportunity for compensation that is comparable to the levels
offered by other similarly situated companies, the Company is able to attract
and retain key executives. The Committee regularly reviews the Company's
compensation programs to ensure that pay levels and incentive opportunities are
competitive and reflect the performance of the Company. In conducting this
review the Committee retains independent compensation consultants.
COMPENSATION PROGRAM COMPONENTS
To achieve its compensation goals, the compensation program consists
primarily of two components, base salary and bonuses. Both components are
adjusted based upon corporate performance and individual initiative and
performance. Total pay levels, that is the aggregate of base salary and annual
bonus, are largely determined through comparisons with companies of similar size
and complexity. Total pay levels for the executive officers are competitive
within a range that the Committee considers to be reasonable and necessary.
5
<PAGE>
PERFORMANCE MEASURES
The Committee uses various performance measures in evaluating annual
executive compensation. The Committee examined earnings as an important measure
of performance. The Committee also considered return on net investment and
personal goals. In its consideration, the Committee did not assign quantitative
relative weights to these factors or follow mathematical formulae. Rather, the
factors discussed above are compared by the Committee with the Company's annual
business plan, the Company's prior year's performance and the performance of
other companies in the industry segments in which the Company competes. The
Committee then made judgments after considering the various factors. The
Committee believes that these performance measures serve to align the interests
of executives with the interests of stockholders.
1998 COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In evaluating the compensation of the Company's chief executive officer (the
"CEO"), the Committee reviewed the CEO's existing compensation arrangements, the
performance of the Company (taking into account the performance measures
discussed above) and the CEO and compensation of chief executive officers in
similarly situated companies. Based on this review, the Committee increased the
CEO's salary by 2.1% in 1998 as compared with 3.7% in 1997 and 2.4% in 1996. In
setting the 1998 increase, the Committee considered, among other things, the
level of compensation of executives in similarly situated companies. In granting
the CEO's bonus in 1998, the Committee likewise considered the incentive
compensation paid to CEOs of similar companies and the Company's performance in
1998. The Company's performance in 1998 exceeded all goals set forth in the
Company's annual business plan. Net income grew 48% to $4,618,000 compared to
$3,110,000 in 1997. Accordingly, the Committee granted the CEO a bonus of
$311,250 for 1998 compared to $260,900 for last year.
STOCK OPTION AND LONG-TERM PLANS
The Company maintains the Continental Materials Corporation Amended and
Restated 1994 Stock Option Plan, as discussed under the heading "EXECUTIVE
COMPENSATION--Stock Options" above. The Company has no other long-term
compensation plans.
SUMMARY
After reviewing all of its existing compensation programs, the Committee
continues to believe that the total compensation program for executives of the
Company is competitive with the compensation programs provided by other
corporations of similar size and complexity. Moreover, the Committee believes
that it has set compensation at levels that reflect each executive officer's
contribution towards the Company's objectives.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
RONALD J. GIDWITZ AND THEODORE R. TETZLAFF
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Theodore R. Tetzlaff, a member of the Compensation Committee, is a partner
in the Chicago law firm of Jenner & Block. From time to time, the Company
retains Jenner & Block to provide it with legal services. The dollar amount of
fees paid to Jenner & Block by the Company in 1998 did not exceed 5% of that
firm's annual gross revenues.
The Company engaged in various transactions in which members of the Gidwitz
Family, including Ronald Gidwitz, had an interest.
McCord Group, Inc. ("McCord") is a company engaged in the travel agency
business. The ownership of McCord includes members of the Gidwitz Family. The
Company purchased a total of approximately
6
<PAGE>
$45,000 in airline tickets and other travel services from McCord during its last
fiscal year. Management believes that these purchases were on terms that were as
favorable as might be obtained from an unrelated third party.
The Company is currently serving as the sponsoring corporation in an
Insurance Purchasing Group (the "Group"), which consists of the Company and its
subsidiaries and other companies in which the Gidwitz Family are the principal
owners. The cost of such insurance is allocated among all members of the Group
based on such factors as, but not limited to, nature of the risk, loss history
and size of operations. From time to time, the Company will advance payments to
the insurance carriers on behalf of the individual members of the Group. The
Company invoices each member of the Group for their respective share of each
payment. During fiscal year 1998, certain members of the Group were indebted to
the Company with respect to advances made by the Company under the insurance
purchasing program. The largest aggregate amount of indebtedness outstanding at
any time during fiscal year 1998 with respect to these companies equaled
approximately $137,000. As of the date of this proxy statement, no past due
amounts are owing to the Company from any member of the Group. The Company's
participation in the Group has, in management's opinion, resulted in significant
savings to the Company in terms of the cost of insurance premiums and other
related insurance charges.
7
<PAGE>
COMPARISON OF TOTAL SHAREHOLDER RETURN
The following graph compares the Company's cumulative total stockholder
return on its common stock for a five year period (December 31, 1993 to December
31, 1998), with the cumulative total return of the American Stock Exchange
Market Value Index ("ASEMVI"), and a peer group of companies selected by the
Company. The "Peer Group" is more fully described below. Dividend reinvestment
has been assumed with respect to the ASEMVI and the Peer Group. The companies in
the Peer Group are weighted by market capitalization as of the beginning of the
measurement period. The Company has never paid a dividend.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CONTINENTAL CUSTOMER AMEX MARKET
<S> <C> <C> <C>
DOLLARS MATERIALS CP SELECT INDEX
1993 $100.00 $100.00 $100.00
1994 $145.31 $97.60 $88.33
1995 $151.56 $125.48 $113.86
1996 $265.63 $159.67 $120.15
1997 $335.94 $226.15 $144.57
1998 $456.25 $283.08 $142.61
</TABLE>
The Company manufactures and markets products in two separate industries.
These industries are (i) heating and air conditioning and (ii) construction
materials, primarily ready-mix concrete. The Company's principal activities have
occurred exclusively in these two industries for over 15 years. The Peer Group
selected by the Company for the above graph is a combination of companies from
these two industries. The companies included in the Peer Group are: American
Business Computer Corporation; Danaher Corporation; Fedders Corporation; Florida
Rock Industries Inc.; ICC Technologies; Kysor Industrial Corporation; Lancer
Corporation; LSB Industries, Inc.; Mesteck Inc.; Tecumseh Products Inc.;
Westinghouse Electric Corporation; and Wynn's International, Inc.
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following information is furnished as to the Common Stock of the Company
owned beneficially as of April 1, 1999 by (i) each director, (ii) the executive
officers named in the Summary Compensation Table, (iii) directors and executive
officers as a group, and (iv) persons that have reported beneficial ownership of
more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT
OF BENEFICIAL OWNER NO. OF SHARES OF CLASS (1)
- - -------------------------------------------------- ------------------- ------------
<S> <C> <C>
Gidwitz Family.................................... 423,318(2)(4) 39.2%
225 West Wacker Drive, Suite 1800 Chicago,
Illinois 60606
Warren G. Lichtenstein............................ 135,450(5) 12.9%
750 Lexington Avenue
New York, New York 10022
Continental Materials Corporation................. 42,110 4.0%
Employees Profit Sharing
Retirement Plan
Thomas H. Carmody................................. 100
James G. Gidwitz.................................. 33,001(2)(3)(4) 3.1%
Betsy R. Gidwitz.................................. 3,001(3) .3%
Ralph W. Gidwitz.................................. 3,001(3) .3%
Ronald J. Gidwitz................................. 3,001(3) .3%
Mark S. Nichter................................... 0(2)
William G. Shoemaker.............................. 160
Joseph J. Sum..................................... 12,200(2)(4) 1.1%
Theodore R. Tetzlaff.............................. 0
Darrell M. Trent.................................. 1,000 .1%
All directors and officers as a group (includes
ten persons).................................... 478,888(6) 43.8%
</TABLE>
- - ------------------------
(1) Based on 1,051,251 shares of Common Stock outstanding as of April 1, 1999.
Shares subject to options exercisable within 60 days of April 1, 1999 are
considered for the purpose of determining the percent of the class held by
the holder of such option, but not for the purpose of computing the
percentages held by others. The shares owned in each case, except as
otherwise indicated, constitute less than .1% of the outstanding shares of
the Company's Common Stock.
(2) Excludes 42,110 shares held by the Company's Employee Profit Sharing
Retirement Plan as to which James G. Gidwitz, Mark S. Nichter and Joseph J.
Sum share voting power as trustees of such Plan.
(3) Excludes shares held indirectly as follows, which shares are included in the
Gidwitz Family holdings (See "ELECTION OF DIRECTORS--FAMILY RELATIONSHIPS"
for a description of the Gidwitz Family):
(a) 363,563 shares owned by a partnership whose managing partners are Betsy
R. Gidwitz, Gerald S. Gidwitz, James G. Gidwitz, Ralph W. Gidwitz, and
Ronald J. Gidwitz.
(b) 2,457 shares owned by McCord Group, Inc. whose beneficial owners include
members of the Gidwitz Family.
(c) 129 shares owned by a partnership whose beneficial owners are members of
the Gidwitz Family.
(d) 15,165 shares held directly by Gidwitz family members other than those
family members included in the table above.
9
<PAGE>
With respect to the shares referenced in this Note, the beneficial owners
indicated in (d) have sole voting and investment power and the beneficial
owners indicated in (a), (b) and (c) have shared voting and investment
power.
(4) Includes shares of Common Stock subject to options which are exercisable
within 60 days of April 1, 1999 as follows: James G. Gidwitz, 30,000 shares
(which shares are also included in the Gidwitz Family holdings); and Joseph
J. Sum, 12,000 shares.
(5) Represents 135,450 shares held by Steel Partners II, L.P. By virtue of his
position with Steel Partners II, Mr. Lichtenstein has sole power to vote and
dispose of such 135,450 shares.
(6) Includes shares held by the Gidwitz Family, shares held by directors and
officers who are not members of the Gidwitz Family and 42,110 shares held by
the Company's Employee Profit Sharing Retirement Plan as to which James G.
Gidwitz, Mark S. Nichter and Joseph J. Sum share voting power as trustees of
such Plan.
PROPOSAL FOR RATIFICATION OF ENGAGEMENT OF
INDEPENDENT AUDITORS
The Board of Directors and the Audit Committee recommend ratification of the
continued engagement of PricewaterhouseCoopers LLP, Certified Public
Accountants, to audit the Company's books for the fiscal year ending January 1,
2000. An appropriate resolution ratifying such employment will be submitted to
the stockholders at the annual meeting. If such resolution is not adopted,
management will reconsider such appointment.
A representative of PricewaterhouseCoopers, is expected to be present at the
stockholders' annual meeting. The representative will have an opportunity to
make a statement if he/she desires to do so, and he/she will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE
STOCK SPLIT FOLLOWED BY A FORWARD STOCK SPLIT
OF THE COMPANY'S COMMON STOCK
SUMMARY
The Board of Directors has unanimously authorized, and recommends for your
approval, an amendment (the "Amendment") to the Company's Certificate of
Incorporation, effecting a reverse 1-for-50 stock split followed immediately by
a forward 100-for-1 stock split of the Company's Common Stock. As permitted
under Delaware law, registered stockholders whose shares of stock are converted
into less than 1 share in the reverse 1-for-50 split will receive cash payments
equal to the fair value of those fractional interests. Registered stockholders
whose shares of Common Stock, $.50 par value, are converted into more than one
share in the reverse split will receive, in the forward 100-for-1 split, a
number of shares of Common Stock, $.25 par value, equal to 100 times the number
of shares and fractional shares held after the reverse split. In other words,
all registered stockholders originally holding 50 or more shares of Common
Stock, $.50 par value, immediately prior to the Effective Date of the
Transaction will hold twice the number of shares of Common Stock, $.25 par
value, immediately subsequent to the Transaction. We refer to the reverse and
forward stock splits, together with the related cash payments to stockholders
with small holdings, as the "Transaction." We also refer to our record
stockholders whose shares of Company stock are registered in their names as
"registered stockholders." The Company's Common Stock, $.50 par value, is the
only class of Company stock currently outstanding and is sometimes referred to
as "Company stock."
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The Company's Common Stock is currently listed on the American Stock
Exchange. The Exchange has indicated that the Transaction, if approved, is not
expected to adversely affect the eligibility of the Common Stock to be traded on
the Exchange. Further, the Company intends to take all steps necessary to
maintain the eligibility of the Common Stock for trading on the American Stock
Exchange subsequent to the Transaction.
In order to complete the Transaction, a majority of the stockholders
entitled to vote at the annual meeting must approve the Amendment to the
Company's Certificate of Incorporation. We attach the proposed Amendment as
Appendix A to this proxy statement. By voting to approve the proposed Amendment,
the stockholders will be authorizing the Company to make such immaterial changes
to the proposed Amendment as the officers executing the Amendment shall approve
without further stockholder approval. If approved, the Transaction will take
place on the date the Amendment is filed with the Secretary of State of the
State of Delaware (the "Effective Date"). The Effective Date is expected to
occur following the market close on June 7, 1999 or as soon thereafter as
practicable.
The highlights of the Transaction are as follows.
EFFECT ON STOCKHOLDERS. If approved at the annual meeting, the Transaction
will affect Company stockholders as follows after completion:
<TABLE>
<CAPTION>
STOCKHOLDER AS OF THE EFFECTIVE DATE NET EFFECT AFTER TRANSACTION COMPLETION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Registered stockholders holding 50 or more shares of Each such stockholder will hold twice as many shares of
Company stock, $.50 par value, in a record account Company stock, $.25 par value.
Registered stockholders holding fewer than 50 shares of Shares will be cashed out at a price based on the
Company stock, $.50 par value, in a record account average daily closing price per share of the Common
Stock on the American Stock Exchange for the ten trading
days immediately preceding the Effective Date (see
Determination of Purchase Price below). You will not
have to pay any commissions or other fees on this
cash-out. Holders of these shares will not have any
continuing equity interest in the Company.
Stockholders holding Company stock, $.50 par value, in Company does not intend that the Transaction affect
street name through a nominee (such as a bank or broker) stockholders holding Company stock in street name
through a nominee (such as a bank or broker) except that
each such stockholder will hold twice as many shares of
Company stock, $.25 par value. However, nominees may
have different procedures and Company stockholders
holding Company stock in street name should contact
their nominees to determine whether they will be
otherwise affected by the Transaction.
</TABLE>
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<PAGE>
REASONS FOR THE TRANSACTION. The Board of Directors unanimously recommends
that the stockholders approve the Transaction for the following reasons, among
others (as described in detail under "Purpose of the Transaction" below):
<TABLE>
<CAPTION>
ISSUE SOLUTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
The Company has a relatively large number of small The Transaction will reduce the number of registered
stockholders. Almost 2,500 registered stockholders hold stockholders with small accounts and result in cost
fewer than 50 shares of Company stock in their record savings for the Company.
accounts. The average holding of this group is less than
15 shares per holder. Continuing to maintain accounts
for these stockholders will cost the Company an
estimated $30,000 per year.
The Company has been unable to locate or contact over The Transaction will greatly reduce the number of shares
1,000 registered stockholders. The Company is unable to held by unlocated stockholders.
redeem these shares pursuant to a tender offer because
positive communication and consent would be required to
effect the repurchase of these shares.
In many cases it is prohibitively expensive for The Transaction cashes out stockholders with small
stockholders with fewer than 50 shares to sell their record accounts without transaction costs such as
shares on the open market. brokerage fees. However, if these stockholders do not
want to cash out their holdings of Company stock, they
may purchase additional shares on the open market to
increase their record account to at least 50 shares, or
may, if applicable, consolidate/transfer their record
accounts that are registered with the transfer agent in
the same way. In addition, if beneficial owners of fewer
than 50 shares of stock want to have those shares cashed
out in the Transaction, they should instruct their
nominee to transfer their shares into a record account
far enough in advance of the Transaction so that the
shares are registered in their names by the Effective
Date.
The Company stock is not broadly held and is not heavily The forward 100-for-1 stock split will almost double the
traded. number of outstanding shares and may result in a market
price range which would be more attractive to a broader
range of investors.
</TABLE>
STRUCTURE OF THE TRANSACTION. The Transaction includes both a reverse stock
split and a forward stock split of Company stock. If this Transaction is
approved and occurs, the reverse split will occur at 6:00 p.m. (Eastern Time) on
the Effective Date. All registered stockholders on the Effective Date will
receive 1 share of Company stock, $.50 par value, for every 50 shares of Company
stock, $.50 par value, held in their record accounts at that time. Any
registered stockholder who holds fewer than 50 shares of Company stock in a
record account at 6:00 p.m. (Eastern Time) on the Effective Date (also referred
to as a "Cashed-Out Stockholder"), will receive a cash payment instead of
fractional shares. This cash payment will be based on the average daily closing
price per share of the Company's stock on the American Stock Exchange for the
ten trading days immediately preceding the Effective Date; provided that if no
shares of Company stock have been traded on any such trading day the closing
price per share for such trading day shall be the
12
<PAGE>
average of the highest bid and lowest asked prices for the stock for such
trading day as reported by the American Stock Exchange. (See "Determination of
Purchase Price" below). Immediately following the reverse split, at 6:01 p.m.
(Eastern Time) on the Effective Date, all registered stockholders who are not
Cashed-Out Stockholders will receive, in the forward 100-for-1 split, a number
of shares of Company stock, $.25 par value, equal to 100 times the number of
shares of Company stock, $.50 par value, held after the reverse stock split. If
a stockholder holds 50 or more shares in a record account, any fractional share
in the account resulting from the reverse split will not be cashed out and the
total number of shares originally held in that account will double as a result
of the Transaction.
In general, the Transaction can be illustrated by the following examples:
<TABLE>
<CAPTION>
HYPOTHETICAL SCENARIO RESULT
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Ms. Johnson is a registered stockholder who holds 49 Instead of receiving a fractional share ( 49/50 of a
shares of Company stock, $.50 par value, in her record share) of Company stock after the reverse split, Ms.
account as of 6:00 p.m. (Eastern Time) on the Effective Johnson's 49 shares will be converted into the right to
Date. At that time, assume the purchase price of 1 share receive cash. Using the hypothetical purchase price of
of Company stock is $35 (see Determination of Purchase $35 per share, Ms. Johnson will receive $1,715 ($35 x 49
Price below). shares). Note: If Ms. Johnson wants to continue her
investment in the Company, she can buy at least 1 more
share of Company stock and hold it in her record
account. Ms. Johnson would have to act far enough in
advance of the Effective Date so that the purchase is
complete by the close of business on that date.
Mrs. Jones has 2 record accounts. As of the Effective Mrs. Jones will receive cash payments equal to the
Date, she holds 25 shares of Company stock, $.50 par purchase price of her shares of Company stock in each
value, in one account and 35 shares of Company stock, record account instead of receiving fractional shares
$.50 par value, in the other. All of her shares are ( 1/2 share and 7/10 share). Assuming a hypothetical
registered in her name only. purchase price of Company stock at $35 per share, Mrs.
Jones would receive two checks totaling $2,100 (25
shares x $35 = $875; 35 shares x $35 = $1,225; $875 +
$1,225 = $2,100). Note: If Mrs. Jones wants to continue
her investment in the Company, she can
consolidate/transfer her two record accounts prior to
the Effective Date. In that case, her holdings will not
be cashed out in connection with the Transaction because
she will hold at least 50 shares in one record account
and she would hold 120 shares of Company stock, $.25 par
value, after the Transaction. She would have to act far
enough in advance so that the consolidation is complete
by the close of business on the Effective Date.
Mr. Roberts holds 55 shares of Company stock, $.50 par After the Transaction, Mr. Roberts will hold 110 shares
value, in his record account as of the Effective Date. of Company stock, $.25 par value.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
HYPOTHETICAL SCENARIO RESULT
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Mr. Jordan holds beneficial ownership of shares of The Company does not intend that the Transaction affect
Company stock, $.50 par value, in a brokerage account as stockholders holding beneficial ownership of Company
of the Effective Date. stock in street name through a nominee (such as a bank
or broker) except that after the Transaction each such
stockholder will hold twice as many shares of Company
stock, $.25 par value. However, nominees may have
different procedures and Company stockholders holding
beneficial ownership of Company stock in street name
should contact their nominees to determine whether they
will be otherwise affected by the Transaction. Note: If
Mr. Jordan beneficially owns fewer than 50 shares and
desires to have his shares cashed out in the
Transaction, he should direct his broker to transfer
them to his record name prior to the Effective Date. He
would have to act far enough in advance so that the
transfer is complete by the close of business on the
Effective Date.
</TABLE>
PURPOSE OF THE TRANSACTION
THE 1-FOR-50 REVERSE SPLIT. As of April 1, 1999, each of approximately
2,500 record holders of Company stock, or approximately 90% of the total number
of record holders, owned less than 50 shares. In addition, such stockholders
owning less than 50 shares owned in the aggregate less than 3.5% of the
outstanding shares of Company stock. Based on the average daily closing price
per share of the Company stock on the American Stock Exchange for the ten
trading days immediately preceding April 1, 1999 of approximately $35, ownership
of 49 shares of Company stock would have a market value of approximately $1,715.
The cost of administering each stockholder's account and the amount of time
spent by management of the Company in responding to stockholder requests is the
same regardless of the number of shares held in the account. Accordingly, the
cost to the Company of maintaining many small accounts is disproportionately
high when compared with the total number of shares involved. In view of the
disproportionate cost to the Company of maintaining small stockholder accounts,
management of the Company believes that it would be beneficial to the Company
and its stockholders as a whole to eliminate the administrative burden and cost
associated with the approximately 2,500 accounts containing less than 50 shares.
It is expected that the direct cost of administering stockholder accounts will
be reduced by approximately $30,000 per year if the Transaction is consummated.
In addition, because the Company is unable to locate a significant number of
its stockholders with small holdings, the Company believes it would be unable to
redeem the shares of such stockholders, and realize the savings described above,
by making a tender offer to acquire such shares. Accordingly, if the Company is
to redeem these shares, the Company believes it must do so by means of the
Transaction. Funds otherwise payable pursuant to the Transaction to a
stockholder who cannot be located will be held until proper claim therefor is
made, subject to applicable laws regarding abandoned property.
Further, the Transaction will enable holders of record of less than 50
shares to dispose of their investment at market value and, in effect, avoid
brokerage fees on the transaction. Stockholders owning a small number of shares
would, if they chose to sell their shares otherwise, likely incur brokerage fees
disproportionately high relative to the market value of their shares. In some
cases, stockholders might encounter difficulty in finding a broker willing to
handle such small transactions.
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<PAGE>
THE 100-FOR-1 FORWARD SPLIT. The Board of Directors anticipates that the
increase in the number of outstanding shares of Company stock resulting from the
100-for-1 forward stock split (which will have the same net effect as a 2-for-1
forward stock split for those stockholders who own 50 or more shares prior to
the Effective Date) will result in a lower market price range which may be more
attractive to a broader range of investors, including individuals. There can be
no assurance that these effects will occur or that the market for the Company
stock will be improved. The Board of Directors cannot predict what effect the
forward stock split or the Transaction, as a whole, will have on the market
price of the Company stock.
EFFECT OF THE TRANSACTION ON COMPANY STOCKHOLDERS
REGISTERED STOCKHOLDERS WITH A RECORD ACCOUNT OF FEWER THAN 50 SHARES. If
we complete the Transaction and you are a Cashed-Out Stockholder (i.e., a
stockholder holding fewer than 50 shares of Company Common Stock in a record
account immediately prior to the reverse stock split):
- You will not receive a fractional share of Company stock as a result of
the reverse split.
- Instead of receiving a fractional share of Company stock, you will receive
cash equal to the purchase price of your affected shares. See
"Determination of Purchase Price" below.
- After the reverse split, you will have no further interest in the Company
with respect to your cashed-out shares. These shares will no longer
entitle you to the right to vote as a stockholder or share in the
Company's assets, earnings, or profits. In other words, you will no longer
hold your cashed-out shares, you will just have the right to receive cash
for these shares.
- You will not have to pay any service charges or brokerage commissions in
connection with the Transaction.
- As soon as practicable after the Effective Date, you will receive cash for
the Company stock you held in your record account immediately prior to the
reverse split in accordance with the following procedures.
- You will receive a transmittal letter from the Company as soon as
practicable after the Effective Date. The letter of transmittal will
contain instructions on how to surrender your certificate(s) to the
Company's transfer agent, LaSalle National Bank, for your cash payment.
You will not receive your cash payment until you surrender your
outstanding certificate(s) to LaSalle National Bank, together with a
completed and executed copy of the letter of transmittal. Please do not
send your certificates until you receive your letter of transmittal. For
further information, see "Stock Certificates" below.
- All amounts owed to you will be subject to applicable federal income tax
and state abandoned property laws.
- You will not receive any interest on cash payments owed to you as a result
of the Transaction.
NOTE: If you want to continue to hold Company stock after the Transaction, you
may do so by taking either of the following actions far enough in advance
so that it is complete by the Effective Date:
(1) purchase a sufficient number of shares of Company stock on the open
market and have them registered in your name so that you hold at least 50
shares in your record account immediately prior to the reverse split; or
(2) if applicable, consolidate your record accounts so that you hold at
least 50 shares of Company stock in one record account immediately prior
to the reverse split.
15
<PAGE>
REGISTERED STOCKHOLDERS WITH 50 OR MORE SHARES. If you are a registered
stockholder with 50 or more shares of Common Stock, $.50 par value, in your
record account as of 6:00 p.m. (Eastern Time) on the Effective Date, we will
first convert your shares into one fiftieth ( 1/50) of the number of shares you
held immediately prior to the reverse split. One minute after the reverse split,
at 6:01 p.m. (Eastern Time), we will convert your shares of Common Stock, $.50
par value, in the forward stock split into a number of shares of Common Stock,
$.25 par value, equal to 100 times the number of shares and fractional shares
you held after the reverse split. The number of $.25 par value shares you
receive will be twice the number of $.50 par value shares you held before the
reverse split. For example, if you were a registered owner of 75 shares of
Company stock $.50 par value immediately prior to the reverse split, your shares
would be converted to 1.5 shares of Common Stock, $.50 par value, in the reverse
split and then would be converted into 150 shares of Common Stock, $.25 par
value, in the forward split.
BENEFICIAL OWNERS OF COMPANY STOCK. The Company does not intend that the
Transaction affect stockholders holding beneficial ownership of Company stock in
street name through a nominee (such as a bank or broker) except that after the
Transaction such stockholders will hold twice as many shares. However, nominees
may have different procedures and stockholders holding Company stock in street
name should contact their nominees to determine whether they will be otherwise
affected by the Transaction.
NOTE: If you are a beneficial owner of fewer than 50 shares of Company stock and
want to have your shares exchanged for cash in the Transaction, you should
instruct your nominee to transfer your shares into a record account in
your name in a timely manner so that you will be considered a holder of
record immediately prior to the reverse split.
CURRENT EMPLOYEES. If you are an employee of the Company, you may own
Company stock through the Company's Employee Profit Sharing Retirement Plan or
hold options to purchase Company stock under the Company's Stock Option Plan. If
you have invested in Company stock under the Company Profit Sharing Retirement
Plan, the Transaction will double the number of shares you own. Likewise, the
Transaction will double the number of options you hold to acquire Company stock
under the Company's Stock Option Plan. If you hold fewer than 50 shares of
Company stock in a registered account, those shares would be converted into the
right to receive cash under the Transaction; however, the Company does not
believe that there are any such employee accounts.
DETERMINATION OF PURCHASE PRICE
In order to avoid the expense and inconvenience of issuing fractional shares
to registered stockholders who hold fewer than 1 share in a record account after
the reverse split, the Company will value each outstanding share of Common Stock
held at the close of business on the Effective Date at the average daily closing
price per share of Company Common Stock on the American Stock Exchange for the
ten trading days immediately preceding the Effective Date, without interest;
provided that if no shares have been traded on any such trading day the closing
price per share for such trading day shall be the average of the highest bid and
lowest asked prices for the Common Stock for such trading day as reported by the
American Stock Exchange. Such per share price is hereinafter referred to as the
"Purchase Price."
Each stockholder who holds less than 50 shares of record immediately prior
to the reverse split will be entitled to receive, in lieu of the fraction of a
share resulting from the reverse split, cash in the amount of the Purchase Price
multiplied by the number of shares of Common Stock, $.50 par value, held by such
stockholder immediately prior to the reverse split. All amounts payable to
stockholders will be subject to applicable state laws relating to abandoned
property. No service charges or brokerage commissions will be payable by
stockholders in connection with the Transaction. The Company will pay no
interest on cash sums due any such stockholder pursuant to the Transaction.
16
<PAGE>
CERTAIN CONSIDERATIONS
The Company's Certificate of Incorporation currently authorizes the issuance
of 3,000,000 shares of Common Stock, $.50 par value. The number of authorized
shares of Common Stock will not be changed by reason of the Transaction, but the
par value will be changed to $.25 per share. As a result of the Transaction, the
number of shares of Common Stock outstanding will be increased from 1,051,251
shares of $.50 par value, to approximately 2,030,000 shares of $.25 par value
(reflecting the cash out of an estimated 36,000 shares of $.50 par value and the
conversion of the remaining 1,015,000 outstanding shares of $.50 par value into
2,030,000 outstanding shares of $.25 par value). As a further result of the
Transaction, the aggregate of the Company's authorized but unissued shares plus
treasury shares available for future issuance or reissuance would be reduced
from 1,948,749 to approximately 970,000 and therefore the Transaction would not
have an anti-takeover effect. If the Transaction is completed, all directors and
officers of the Company as a group would hold 957,776 shares, $.25 par value,
representing approximately 45.3% of the Common Stock, $.25 par value, that would
be outstanding on a fully diluted basis. See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT."
Based upon the Company's best estimates, if the Transaction had been
consummated as of April 1, 1999, the number of holders of record of Common Stock
(including direct participants in The Depository Trust Company who hold Common
Stock in street name) would have been reduced from approximately 2,850 to
approximately 350 or by approximately 2,500 stockholders. The Common Stock is
currently registered under Section 12(b) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and, as a result, the Company is subject to the
periodic reporting and other requirements of the Exchange Act. The Transaction
will not affect the registration of the Common Stock under the Exchange Act, and
the Company has no current intention of terminating its registration under the
Exchange Act to become a "private" company. In addition, consummation of the
Transaction, including the additional shares to be issued in connection with the
forward 100-for-1 split, is not expected to affect adversely the eligibility of
the Common Stock to be traded on the American Stock Exchange.
The Company authorized a stock repurchase program dated October 7, 1998.
Under this program, the Company has repurchased 31,620 shares over the period
from January 19, 1999 through April 6, 1999 at an average price of $34.98 per
share. The Company has chosen to discontinue this program during the period from
April 14, 1999 through consummation of the Transaction. The Company may resume
the repurchase program at any time thereafter.
Based on the aggregate number of shares owned by holders of record of less
than 50 shares as of April 1, 1999 and the average daily closing price per share
of the Common Stock on the American Stock Exchange for the ten trading days
immediately preceding such date, the Company estimates that payments of cash in
lieu of the issuance of fractional shares to record stockholders who held less
than 50 shares of Common Stock immediately prior to the reverse split will total
approximately $1,260,000 in the aggregate (36,000 shares multiplied by an
assumed Purchase Price of $35 per share).
STOCK CERTIFICATES
In connection with the Transaction, the Company's common stock will be
identified by a new CUSIP number. This new CUSIP number will appear on any stock
certificates representing shares of Company common stock issued after the
Effective Date. As a result of the Transaction any certificates representing
shares of Common Stock, $.50 par value, held by registered stockholders owning
50 or more shares immediately prior to the Transaction will represent twice as
many shares of Common Stock, $.25 par value. It will not be necessary for such
stockholders to return such certificates to the Company or its transfer agent
for exchange. Any stockholder with 50 or more shares immediately prior to the
reverse split who wants to receive a certificate reflecting the increased number
of shares, $.25 par value, and bearing the new CUSIP number can do so at any
time by contacting the Company's transfer agent, LaSalle National Bank, at
Corporate Trust Operations, (1-800-246-5761) for instructions on how to
surrender old certificates. After the Effective Date, an old certificate
presented to an exchange agent in settlement of a trade will be
17
<PAGE>
exchanged for a new certificate reflecting the increased number of shares, $.25
par value, and bearing the new CUSIP number.
As described above, any Cashed-Out Stockholder with share certificates will
receive a letter of transmittal after the Transaction is completed. These
stockholders must complete and sign the letter of transmittal and return it with
their stock certificate(s) to the Company's transfer agent before they can
receive cash payment for those shares.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
We have summarized below certain federal income tax consequences to the
Company and stockholders resulting from the Transaction. This summary does not
discuss all aspects of federal income taxation that might be relevant to you in
light of your individual circumstances, and it is not intended to constitute
advice regarding the federal income tax consequences of the Transaction. Many
stockholders (such as financial institutions, insurance companies,
broker-dealers, tax-exempt organizations, foreign persons and individuals who
acquired their Company stock pursuant to the exercise of an employee stock
option) may be subject to special tax rules. Other stockholders may also be
subject to special tax rules, including but not limited to stockholders who have
held, or will hold, stock as part of a straddle, hedging, or conversion
transaction for federal income tax purposes. In addition, this summary does not
discuss any state, local or foreign tax laws (or any federal tax laws other than
those pertaining to the income tax). This summary assumes that you are a U.S.
person and have held, and will hold, your shares as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code"). You should consult your tax advisor as to the particular federal,
state, local, foreign, and other tax consequences, in light of your specific
circumstances.
Our discussion is based on the Code, regulations promulgated thereunder and
rulings now in effect, current administrative rulings and practice, and judicial
precedent, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences to the Company or its
stockholders discussed herein.
We believe that the Transaction will be treated as a tax-free
"recapitalization" for federal income tax purposes. This will result in no
material federal income tax consequences to the Company.
FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS WHO ARE NOT CASHED OUT BY
THE TRANSACTION. If you (1) continue to hold Company stock immediately after
the Transaction, and (2) you receive no cash as a result of the Transaction, you
will not recognize any gain or loss in the Transaction and you will have the
same adjusted tax basis and holding period in your Company stock as you had in
such stock immediately prior to the Transaction.
FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS WHO RECEIVE CASH IN THE
TRANSACTION. If you receive cash as a result of the Transaction, your tax
consequences will depend on whether, in addition to receiving cash, you or a
person or entity related to you continues to hold Company stock immediately
after the Transaction, as explained below.
(a) Stockholders Who Exchange All of Their Company Stock for Cash as a
Result of the Transaction.
If you (1) receive cash in exchange for a fractional share as a result of
the Transaction, (2) you do not continue to hold any Company stock immediately
after the Transaction, and (3) you are not related to any person or entity which
holds Company stock immediately after the Transaction, you will recognize
capital gain or loss. The amount of capital gain or loss you recognize will
equal the difference between the cash you receive for your Company stock and
your aggregate adjusted tax basis in such stock.
If you are related to a person or entity who continues to hold Company stock
immediately after the Transaction, you will recognize gain in the same manner as
set forth in the previous paragraph, provided that your receipt of cash either
(1) is "not essentially equivalent to a dividend," or (2) is a "substantially
disproportionate redemption of stock," as described below.
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<PAGE>
- "Not Essentially Equivalent to a Dividend." You will satisfy the "not
essentially equivalent to a dividend" test if the reduction in your
proportionate interest in the Company resulting from the Transaction is
considered a "meaningful reduction" given your particular facts and
circumstances. The Internal Revenue Service has ruled that a small
reduction by a minority stockholder whose relative stock interest is
minimal and who exercises no control over the affairs of the corporation
will meet this test.
- "Substantially Disproportionate Redemption of Stock." The receipt of cash
in the Transaction will be a "substantially disproportionate redemption of
stock" for you if the percentage of the outstanding shares of Company
stock owned by you immediately after the Transaction is less than 80% of
the percentage of shares of Company stock owned by you immediately before
the Transaction.
In applying these tests, you will be treated as owning shares actually or
constructively owned by certain individuals and entities related to you. If the
taxable amount is not treated as capital gain under any of the tests, it will be
treated first as ordinary dividend income to the extent of your ratable share of
the Company's undistributed earnings and profits, then as a tax- free return of
capital to the extent of your aggregate adjusted tax basis in your shares, and
any remaining amount will be treated as capital gain. See "MAXIMUM TAX RATES
APPLICABLE TO CAPITAL GAIN" below.
(b) Stockholders Who Both Receive Cash and Continue to Hold Company Stock
Immediately After the Transaction.
If you both receive cash as a result of the Transaction and continue to hold
Company stock immediately after the Transaction, you generally will recognize
gain, but not loss, in an amount equal to the lesser of (1) the excess of the
sum of the aggregate fair market value of your shares of Company stock
immediately after the Transaction plus the cash received over your adjusted tax
basis in the shares, or (2) the amount of cash received in the Transaction. In
determining whether you continue to hold stock immediately after the
Transaction, you will be treated as owning shares actually or constructively
owned by certain individuals and entities related to you. Your aggregate
adjusted tax basis in your shares of Company stock held immediately after the
Transaction will be equal to your aggregate adjusted tax basis in your shares of
Company stock held immediately prior to the Transaction, increased by any gain
recognized in the Transaction, and decreased by the amount of cash received in
the Transaction.
Any gain recognized in the Transaction will be treated, for federal income
tax purposes, as capital gain, provided that your receipt of cash either (1) is
"not essentially equivalent to a dividend" with respect to you, or (2) is
a"substantially disproportionate redemption of stock" with respect to you. (Each
of the terms in quotation marks in the previous sentence is discussed above in
paragraph (a) under this subheading) In applying these tests, you may be able to
take into account sales of shares of Company stock that occur substantially
contemporaneously with the Transaction. If your gain is not treated as capital
gain under either of these tests, the gain will be treated as ordinary dividend
income to you to the extent of your ratable share of the Company's undistributed
earnings and profits, then as a tax-free return of capital to the extent of your
aggregate adjusted tax basis in your shares, and any remaining amount will be
treated as capital gain.
MAXIMUM TAX RATES APPLICABLE TO CAPITAL GAIN. Under current federal income
tax law, certain capital gains realized by individuals (but not corporations)
are taxed at preferential rates. If you are an individual, your net capital gain
(defined generally as your total capital gains in excess of capital losses for
the year) recognized upon the sale of capital assets that have been held for
more than 12 months generally will be subject to tax at a rate not to exceed
20%, while your net capital gain recognized upon the sale of capital assets that
have been held for 12 months or less will be subject to tax at ordinary income
tax rates. In addition, capital gain recognized by a corporate taxpayer will
continue to be subject to tax at the ordinary income tax rates applicable to
corporations.
As explained above, the amounts paid to you as a result of the Transaction
may result in dividend income, capital gain income, or some combination of
dividend and capital gain income to you depending
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on your individual circumstances. YOU ARE STRONGLY ADVISED TO CONSULT YOUR TAX
ADVISOR AS TO THE PARTICULAR FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES OF THE TRANSACTION, IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES.
APPRAISAL RIGHTS
Dissenting stockholders do not have appraisal rights under Delaware state
law or under the Company's Certificate of Incorporation or Bylaws in connection
with the Transaction.
RESERVATION OF RIGHTS
The Board of Directors reserves the right to abandon the Transaction without
further action by the stockholders at any time before the filing of the
Amendment to the Certificate of Incorporation with the Delaware Secretary of
State, even if the Transaction has been authorized by the stockholders at the
annual meeting. The Company further reserves the right to make immaterial
changes to the proposed Amendment as set forth in Appendix A to this proxy
statement without further action by the stockholders even if the Transaction has
been authorized by the stockholders at the annual meeting.
Proxies solicited by the Board of Directors will be voted FOR this proposal,
unless you specify otherwise in your proxy.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
INFORMATION INCORPORATED BY REFERENCE
The Annual Report of the Company on Form 10-K for the fiscal year ended
January 2, 1999, a copy of which is available to each stockholder upon request
to the Company, is hereby incorporated by reference in this proxy statement.
STOCKHOLDER PROPOSALS AND OTHER MATTERS
The deadline for receipt of stockholder proposals for inclusion in the
Company's proxy statement for its 1999 fiscal year is December 17, 1999.
The management does not know of any matters to be presented at the annual
meeting other than those set forth in this proxy statement. If any other matters
not now known come before the annual meeting, it is intended that the persons
named in the proxies will act according to their best judgment.
EXPENSES
The entire expense of preparing, printing and mailing the form of proxy and
the material used for the solicitation thereof will be borne by the Company. In
addition, the Company has retained the services of Beacon Hill Partners, Inc. to
solicit proxies from nominees and brokers' accounts at a cost of approximately
$4,500. Solicitation of proxies will be made by mail but also may be made
through oral communications by directors, officers or employees of the Company
who will receive no additional compensation for such efforts.
By Order of the Board of Directors,
[SIG]
James G. Gidwitz
Chairman of the Board
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APPENDIX A
PROPOSED AMENDMENT AMENDING AND RESTATING ARTICLE FOURTH OF
THE CERTIFICATE OF INCORPORATION
TO EFFECT THE PROPOSED REVERSE STOCK SPLIT
AND FORWARD STOCK SPLIT
RESOLVED, that Article FOURTH of the Certificate of Incorporation of the
Corporation is hereby amended and restated to read in its entirety as follows:
FOURTH.
Section 1.
The aggregate number of shares of all classes of capital stock which the
Corporation shall have authority to issue is three million four hundred
thousand (3,400,000) shares, of which four hundred thousand (400,000) shares
shall be preferred stock, par value $.50 per share, issuable in one or more
series, and three million (3,000,000) shares shall be common stock, par
value $.50 per share; provided, however, that at 6:01 p.m. (Eastern Time) on
the Effective Date (as defined in Section 3(a) of this Article FOURTH) the
par value of shares of common stock shall be automatically changed to $.25
per share as provided in Section 3(b) of this Article FOURTH.
Section 2.
The shares of common stock shall have the rights and privileges of
common stock under the laws of the State of Delaware, without preference or
priority of any one share over any other. The preferred stock shall have
such voting powers, full or limited, or be without voting powers, and in
such series (either one or more) and with such designations, preferences as
to dividends, assets or otherwise and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions
thereof and subject to such conversion, exchange or redemption at such time
or times, price or prices, rates or adjustments, as shall be stated in a
resolution or resolutions providing for the issue of such stock adopted by
the Board of Directors, the Board of Directors hereby expressly being
granted the authority to fix from time to time by resolution or resolutions
the designations, powers, preferences and rights and the qualifications,
limitations or restrictions of such preferred stock.
Section 3.
(a) At 6:00 p.m. (Eastern Time) on the effective date of the amendment
amending and restating this Article FOURTH (the "Effective Date"), each
share of common stock held of record as of 6:00 p.m. (Eastern Time) on the
Effective Date or held in Corporation's treasury as of such time shall be
automatically reclassified and converted, without further action on the part
of the holder thereof, into one-fiftieth ( 1/50) of one share of common
stock. No fractional share of common stock shall be issued to any Fractional
Holder (as defined below) upon such reclassification and conversion. From
and after 6:00 p.m. on the Effective Date, each Fractional Holder shall have
no further interest as a stockholder in respect of any such fractional share
and, in lieu of receiving such fractional share, shall be entitled to
receive, upon surrender of the certificate or certificates representing such
fractional share, the cash value of such fractional share based on the
average daily closing price per share of the common stock on the American
Stock Exchange for the 10 trading days immediately preceding the Effective
Date, without interest; provided, however, that if no shares of common stock
have been traded on any such trading day the closing price per share of the
common stock for such trading day shall be the average of the highest bid
and lowest asked prices for the common stock for such trading day as
reported by the American Stock Exchange. As used herein, the term
"Fractional Holder" shall mean a holder of record of less than 50 shares of
common stock as of 6:00 p.m. (Eastern Time) on the
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Effective Date who would be entitled to less than one whole share of common
stock in respect of such shares as a result of the reclassification and
conversion provided for in this Section 3(a).
(b) At 6:01 p.m. (Eastern Time) on the Effective Date, each share of
common stock, par value $.50 per share, and any fraction thereof (excluding
any interest in the Company held by a Fractional Holder converted into cash
pursuant to Section 3(a) above) held by a holder of record of one or more
shares of common stock as of 6:01 p.m. (Eastern Time) on the Effective Date
or held in the Corporation's treasury as of such time shall be automatically
reclassified and converted, without further action on the part of the holder
thereof, into multiple shares of common stock on the basis of 100 shares of
common stock, par value $.25 per share, for each share of common stock, par
value $.50 per share, then held.
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[LOGO]
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[FRONT]
PROXY PROXY
CONTINENTAL MATERIALS CORPORATION
PROXY CARD FOR ANNUAL MEETING ON MAY 26, 1999
The undersigned hereby appoints James G. Gidwitz and Joseph J. Sum as
Proxies, each with power to appoint his substitute, and hereby authorizes
them to represent and to vote as designated below, all the shares of common
stock of Continental Materials Corporation held of record by the undersigned
on April 1, 1999, at the annual meeting of stockholders to be held on May 26,
1999, or any adjournment thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSALS (1),
(2) AND (3).
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO INSTRUCTIONS ARE GIVEN,
IT WILL BE VOTED "FOR" ELECTION OF ALL NOMINEES AS DIRECTORS OF THE COMPANY,
"FOR" APPROVAL AND RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
AND "FOR" THE PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
EFFECT A REVERSE STOCK SPLIT FOLLOWED BY A FORWARD STOCK SPLIT. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS
MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
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CONTINENTAL MATERIALS CORPORATION
(1) Election of three nominees to the Board of Directors.
<TABLE>
<S> <C> <C>
FOR all nominees WITHHOLD
listed below AUTHORITY To vote
(except as marked to for all nominees
the contrary below) listed below
/ / / /
Ralph W. Gidwitz, William G. Shoemaker and Theodore R. Tetzlaff
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THAT NOMINEE'S NAME.)
(2) Approval and ratification of the Directors' appointment of
PricewaterhouseCoopers LLP as the Company's independent
auditors for the year ending January 1, 2000.
FOR AGAINST ABSTAIN
/ / / / / /
(3) Approval of the proposed amendment to the Certificate of Incorporation
to effect a reverse stock split followed by a forward stock split.
FOR AGAINST ABSTAIN
/ / / / / /
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments thereof.
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
Dated , 1999
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Signature
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Signature if held jointly
Please sign exactly as name appears above. Executors, administrators,
trustees, guardians, attorneys-in-fact, etc. should give their full titles.
If signer is a corporation, please give full corporate name and have a duly
authorized officer sign, stating title. If a partnership, please sign in
partnership name by authorized person. If stock is registered in two names,
both should sign.
</TABLE>
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